Maximize the Interest Earned on Your Savings Using This Banking System

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Our current personal banking system is one of the simplest, most powerful tools I’ve ever created to optimize our finances.

Here are a few of the benefits that I will later describe in detail:

Prevent any-and-every type of banking-related fee

Maximize the amount of interest being earned on savings, at all times

Save hours of time by automating account transfers and overdraft protection.

This system was developed through trial and error over the course of several years, and today, I want to share every detail with you to help you create something similar.

Link the checking account to several no-fee, high-yield savings accounts offering the best interest rates.

Automate by scheduling free, automatic transfers from checking into savings according to your income, expenses, and personal needs.

Before hopping into the specifics, please note:

I recommend specific accounts, at specific banks, because I have done the research and believe these accounts to be the optimal solution. We personally use each of the recommended accounts in the same context as my recommendations below. If you don’t like one of the banks, or would prefer to use a different type of account, feel free to do so.

Free Overdraft Protection – When you link a Discover Savings Account (below) to the Cashback Checking Account, Discover will automatically pull funds from your Savings Account to prevent your Checking Account from being overdrawn. All done automatically, in real-time, for free, without requiring a credit pull. A fantastic feature.

The only downside to this account is the lack of physical branches. Discover has just one physical branch in Greenwood, Delaware.

However, if you prefer access to a physical branch, there is a simple solution within the context of this article. Open a no-fee checking account with a local credit union or bank, keep $1 in the account to avoid premature closure, then transfer money from your primary Discover Checking into the Local Checking whenever needed. As I’ll demonstrate with the savings accounts below, ALL external transfers are quick and free through Discover.

Like the Cashback Checking, Discover’s High-Yield Savings Account is also a highly competitive offering. There are no fees to open the account, no minimum opening deposit, no monthly maintenance fees, and no monthly balance requirements.

In addition, Discover is always quick to raise the interest rate on the account when the Federal Reserve announces a rate increase. I’ve opened more than a dozen high-yield savings accounts over the past five years, and excluding the accounts described later in this article (which you’ll also open), Discover rates are always near the top of the pack (click herefor the current APY rate).

All Discover products are linked and managed through a unified account dashboard. By establishing both checking and savings with Discover, you can keep a minimal amount of money in the checking account (varies according to your expenses), with the bulk of your savings earning interest in the high-yield savings account.

Transfers between checking and savings are instantaneous and free (and can be scheduled in advance as one-time or repeating), plus Discover offers free account overdraft protection which automatically pulls funds from the savings account if the checking balance reaches $0.

Note, while you’re opening Discover products, you might consider opening the no-annual-fee Discover It Credit Card (currently offering a $50 bonus and double cash back for a year) or any of the other no-fee products highlighted in my Discover Bank Review.

The Discover accounts described earlier are used primarily for transfers, debit transactions, bill payments, and other immediate or short-term financial needs. They are absolutely crucial to maintaining a cohesive, interconnected banking system.

However, there are a few specialized savings accounts that offer a higher interest rate than Discover. After first establishing the Discover accounts, you can connect these accounts to your Discover Dashboard and push or pull money between said accounts at any time.

The first specialized savings account you should open is made available through Netspend. There are actually several different 5% accounts available. They all work the exact same way, and all pay 5% interest on balances up to $1,000 (per person, per account). The interest rate is basically zero beyond the first $1,000, which means there is absolutely no reason to hold more than $1,000 in each of these accounts.

I have five accounts in my name, and Vanessa has five accounts in her name, for a total capacity of $10,000. You can’t beat earning 5% interest on $10,000, with absolutely no risk involved. Given our experience and those shared by the Cash Cow Community, I believe that five (rarely six) is the maximum number of accounts allowed, per person.

Each of these accounts operates as a combined prepaid card and 5% savings account. They are a bit of a hassle to establish because you must transfer funds to the prepaid card before you can access the 5% savings account. But once established, each account pays 5% APY interest on up to $1,000 and is fully FDIC insured.

We have $1,000 in each of the (10) accounts to use as hybrid emergency funds. In reality, we almost never touch this money because 5% guaranteed interest is better than any bond investment available today. But, it’s nice to know that the money is readily available should you exhaust other short-term savings. All of these accounts are linked directly to Discover for easy access.

Once you exhaust the 5% Netspend Accounts, there is one more account available that offers a higher interest rate than every other online bank – the CIT Bank Savings Builder Account (currently 2.45% APY). Much like Discover, this account has zero fees to worry about and no minimum balance requirements (but does require a $100 opening deposit).

If you don’t have additional capacity for savings, or if you don’t care about earning a better interest rate, then just forget about this account and stick to Discover. However, because Discover allows free external transfers, it’s extremely easy to connect the CIT Savings Account to push/pull money whenever necessary.

To earn the 2.45% APY rate on the Savings Builder Account, you must meet one of two qualifying activities each month:

Maintain $25,000+ in the savings account, or

Make a $100+ monthly deposit into the savings account

Performing either activity will earn the 2.45% APY rate that month, but the $100 monthly deposit is clearly easier to achieve using the Discover framework you’ve just established. When you open the CIT Savings Builder Account, log into Discover, link the CIT Account, and establish a recurring $100+ monthly transfer to satisfy the requirement.

Note, while you must have a $100 deposit to earn the 2.45% APY, there are no rules restricting withdrawals and no minimum balance requirements. Therefore, if funds are tight in any given month, either skip the $100 monthly deposit altogether or make the deposit then make a subsequent withdrawal back to Discover.

Summary

The fee-free bank accounts I’ve just outlined are available nationwide and require no ongoing maintenance. When combined, they allow you to maximize the amount of interest earned on your savings and prevent banking-related fees. To recap:

If you still need additional savings capacity, this account provides the highest interest rate among national savings accounts (excluding Netspend). The only requirement is that you deposit $100 or more each month into the account, which can be automated using the Discover framework I’ve outlined.

This banking system has allowed us to maximize the interest earned on our savings, simplify our finances, avoid fees, and save time.

Editorial Disclaimer: The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author’s alone.

User Generated Content Disclosure: Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

Thanks for sharing this info. How do you avoid all the fees that Netspend charges? They charge a monthly fee even if you dont use the debit card. I read now that they automatically upgrade your account to the feeadvantage membership if you deposit $500 or more, and this charges $5 or so a month. Also they have a fee if you withdraw and they also have a fee if there is no activity. So how do you get around all that?

Reply

February 1, 2019 10:45 pm

Author

Jacob Lumby, PhD

Hi BAM, I’ve answered all of your questions in the dedicated Netspend article, which is linked several times within this article. I would encourage you to have a look and read carefully. Neither we nor other readers have ever paid a fee by following the recommendations made in my Netspend article.

Reply

February 2, 2019 8:58 am

Guest

Thayer

Thanks for sharing this strategy!

Reply

January 29, 2019 2:54 pm

Author

Jacob Lumby, PhD

You bet!

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January 29, 2019 3:49 pm

Guest

Seth D.

Great article and I enjoyed the discussion in the comments. Based on everything written and clicking around online, I think Discover looks like the best overall option. I might try a few of the other banks to compare, but I like what I see from Discover.

Reply

January 17, 2019 3:14 pm

Author

Jacob Lumby, PhD

Thank you for the feedback, Seth. Let me know if you have any additional questions.

Reply

January 18, 2019 9:26 am

Guest

Andree

I’ve been using Ally Bank for savings, current rate 2.20. They offer an 11 month lock-in CD with a higher rate that can be liquidated after 6days without penalty. Current 11 mos CD rate is 2.3%. When interest rates have gone up, I call them and they close my CD account and reopen it under the higher interest rate. It’s easy and doesn’t take much time to do.

You don’t need to make the $100 monthly deposit into this account. Interest is slightly less. I have been very happy with their customer service.

Reply

January 17, 2019 9:06 am

Author

Jacob Lumby, PhD

Hi Andree, thank you for sharing. I maintain a checking/savings account combo at Ally Bank as well, and like you, have been relatively pleased with my experience. However, in logging into my account, I see the current Ally Savings yield is 2.0% (not 2.2%) and after monitoring both accounts since early-2017, I find that Ally (much like Alliant Credit Union mentioned below) consistently lags behind the rates offered by Discover by about 0.1% (and they usually raise their rates about a month after Discover). Other than that, I think both banks offer very similar features and online banking experience.

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January 17, 2019 11:38 am

Guest

Joe C.

I’ve been transitioning to Alliant Credit Union (available to anyone with minimal requirements to join). Their checking has a yield of .65% and savings currently has a 2% yield. The checking yield is very competitive (minimal requirements to get the yield), and the savings has a decent yield. Although their savings is not as high as others, I like the fact that I can instantly transfer between my checking and savings. They also have a very good external ACH system. Personally, I would recommend Alliant over Discover, as I’ve had issues with Discover in the past. The Netspend prepaid cards… Read more »

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January 17, 2019 8:26 am

Guest

Mighty Investor

Another thing about Alliant–they have a credit card that pays 3% cash back the first year (fee waived the first year) and then 2.5% in perpetuity. I’ve been with Alliant since the early 90s and have found them easy to deal with.

Reply

January 17, 2019 9:50 am

Author

Jacob Lumby, PhD

Yes, being a current Alliant member, they send me a lot of preapproval offers for their cash back credit card via email. While 3% cash back is great in the first year, I’ve never pulled the trigger on opening because the card carries a $59 annual fee, while a number of other 2% cash back (Citi Double Cash and Fidelity Visa) and 2 Reward points (Amex Blue Biz Plus) cards do not. Therefore, the Alliant card only makes sense if you plan to open/cancel within the first year (to avoid all subsequent annual fees) or spend enough money annually to… Read more »

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January 17, 2019 11:46 am

Guest

Joe C.

I haven’t pulled the trigger on the Alliant credit card yet that pays the 2.5% cash back, but I’ve calculated that you would need to spend at least $11,800 per year (a little less than $1000/month) on the card for the annual fee to be offset compared to the Fidelity Visa/Citi Double Cash 2% cash back card with no annual fee.

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January 17, 2019 11:53 am

Guest

Mighty Investor

Yep. I came up with the same.

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January 17, 2019 12:04 pm

Guest

Mighty Investor

Yes. As I recall, the break even for sticking with the Alliant cash back is about $11,000 per year in spending vs. other 2 percent cards. I haven’t signed up for it because I prefer to hop around and lock in massive bonuses. But overall Alliant is good. I actually moved all my cash out of Alliant recently, however, and over to Vanguard, though. Vanguard’s basic sweep money fund (only in govt. securities) is yielding higher than Alliant–and I’m not having to lock in a CD. Not FDIC insured, but in nothing but govt. securities–so same different for me.

Reply

January 17, 2019 12:04 pm

Author

Jacob Lumby, PhD

Exactly. Even if you apply for a single rewards credit card at a time and put all spend on that card to secure the sign-up bonus, the ROI will far exceed the 2-3% cash back rate being discussed.

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January 17, 2019 1:14 pm

Guest

Mighty Investor

Yep. I think Alliant’s cash back card is perfect for a very specific type of person. Someone who spends well over $1000 per month on their card and can’t be bothered to hop from card to card. There are actually a ton of people in that group–but not you and me.

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January 18, 2019 10:24 am

Author

Jacob Lumby, PhD

Agreed. But I would urge said persons to consider earning 2x Membership Rewards on all purchases via the Amex Blue Biz Plus, while saving the $59 annual fee. Then again, that’s the travel geek Jacob speaking, who knows that 2x MR’s are easily worth more than 2.5% cash back when redeemed for travel.

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January 18, 2019 11:04 am

Guest

Joe C.

They can also be redeemed at $0.0125/point with the Schwab Platinum Card. That basically makes the Blue Biz Plus a 2.5% cash back card combined with the Schwab Platinum Card. Unless a person can make good use of the benefits of the Schwab Platinum Card (airline fee credits, Uber credits, Saks credits, etc.), the Alliant annual fee of $59/year is much cheaper than the $550/year on the Schwab Platinum Card. The main thing I question with all the credits on the Platinum Card is whether a person would normally spend the money that they get the credits for. If a… Read more »

Reply

January 22, 2019 9:07 am

Author

Jacob Lumby, PhD

Good food for thought, Joe.

Reply

January 22, 2019 11:01 am

Author

Jacob Lumby, PhD

Hi Joe, I actively maintain all of the accounts you’ve mentioned at Alliant Credit Union, as well as a Savings Secure Loan that I opened in 2017 to boost my credit score into the 800’s. Overall, it’s been a good experience, but I find Discover’s account dashboard, online user experience, 24/7 customer service, and prevailing interest rates to consistently out-compete the offerings from Alliant. As I highlight in the review, transfers between checking and savings are also instant at Discover, and thankfully, it looks like that is becoming standard at the best online banks (another reader wrote me and said… Read more »

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January 17, 2019 11:29 am

Guest

Mighty Investor

Good to know you like Discover’s UI better. I’ll keep that in mind–as I really do prefer interacting with financial institutions that have high-quality websites.

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January 17, 2019 12:05 pm

Author

Jacob Lumby, PhD

I agree, and after just logging into each of the accounts being discussed here, I conclude that Alliant needs a massive website and interface update. Everything is outdated and clunky. Even the login process is terribly outdated (registering a device) compared to Ally or Discover.

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January 17, 2019 1:12 pm

Guest

Mighty Investor

Yep. Oddly, Alliant’s app for your smartphone works quite well.

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January 18, 2019 10:25 am

Guest

Chris A.

So when the interest on your Netspend accounts brings you over $1,000, are you just transferring any surplus over that amount to another account?

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January 16, 2019 10:15 pm

Author

Jacob Lumby, PhD

Hi Chris, that’s correct.

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January 17, 2019 10:56 am

Guest

Wellington

Just got your email Dr. Cash Cow. This is fantastic for us. Free and relatively easy to implement. Thanks for your diligence is sniffing out these accounts.

Reply

January 16, 2019 5:37 pm

Author

Jacob Lumby, PhD

Glad I could help!

Reply

January 16, 2019 6:02 pm

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